SEBI moots axing concentration-risk norms in securitised assets for RBI-regulated entities

SEBI Proposes Aligning Securitisation Norms With RBI

The Securities and Exchange Board of India has floated a consultation paper proposing changes to its securitised debt framework, with the aim of bringing it closer to the Reserve Bank of India's regime. The paper, issued on May 4, sets out five suggestions. In a securitisation transaction, an originator assembles a pool of debt and transfers the receivables to a special purpose distinct entity, which then issues securitised debt instruments to investors.

The first and most significant proposal concerns concentration risk. Regulation 19A of SEBI's Issue and Listing of Securitised Debt Instruments and Security Receipts Regulations currently caps exposure to a single obligor at 25% of the securitised pool at the time of issuance, a limit intended to prevent risk from being concentrated in one borrower. Industry feedback cited in the paper said this restriction prevents listing of instruments backed by a single asset, even though the RBI permits such structures, and that this holds back the listed securitisation market. SEBI has accordingly proposed exempting pools originated by RBI-regulated entities from the cap.

What The Other Proposals Cover

The second suggestion would permit the originator and the special purpose distinct entity to belong to the same group or share common management control, provided the originator is regulated by the RBI. SEBI currently bars this arrangement. The paper notes that RBI norms require the originator to have no direct or indirect control over the entity, but do not prohibit transactions between entities in the same group.

To address conflict-of-interest concerns arising from that relaxation, a third proposal would limit the originator to a single representative on the entity's board, without veto powers. Existing SEBI rules only bar trustees linked to the originator from forming more than half the board.

The fourth proposal deals with winding up. Under current rules, cancellati…